Prostate cancer drug developer Dendreon said today it filed for Chapter 11 bankruptcy protection as part of a financial restructuring agreed upon with senior lenders that may result in a recapitalization or sale of the company or its assets, led by its marketed treatment Provenge® (sipuleucel-T).
The Chapter 11 filing caps more than four years in which the company has struggled with underperforming sales and increased competition from other developers of cancer treatments. In results released today, the company said it finished the third quarter with a $22.069 million net loss, improved from $67.215 million, on total Provenge product revenue that rose 8.8% year-over-year to $73.118 million. For the first three quarters of 2014, Dendreon lost $73.722 million, compared with $208.062 million in January–September 2013, while Provenge product revenue rose 7.3% to $224.061 million.
Dendreon insisted today that its financial restructuring will not disrupt or affect delivery of Provenge to providers and patients, citing the company’s approximately $100 million of cash, cash equivalents and investments on hand as of November 7.
“Dendreon has significant liquidity to support all of its operations during the restructuring process,” the company said in a statement, “and does not anticipate the need to raise any incremental financing in connection with the restructuring process.”
Added W. Thomas Amick, Dendreon’s president and CEO since July: “We are confident that this process will allow Provenge to remain commercially available to the patients and providers who have come to rely on this revolutionary personalized cancer immunotherapy.”
In a declaration filing submitted to U.S. Bankruptcy Court for the District of Delaware by Robert L. Crotty, Dendreon’s evp, general counsel and secretary, the company listed $660.732 million in liabilities and only $340.263 million in assets.
Crotty said Dendreon ran into trouble by ramping up its operating structure and footprint on the premise that it would meet analyst expectations of billions in revenue; the company cited Canaccord Genuity’s projection that Provenge would rack up $4 billion in annual revenue by 2020.
“With the passage of time after launch and by August 2011, it became apparent to the Company that revenue growth would take more time than initially anticipated and the Company predicted a more gradual adoption of use by physicians,” Crotty acknowledged. “While the Company remained optimistic about its potential for significant growth in the long term, it decided to aggressively manage its costs in the interim.”
Sales have struggled due to competition from prostate cancer drugs by Johnson & Johnson and Medivation, as well as Provenge’s $93,000 price tag. Dendreon has defended its pricing of Provenge by citing its novelty as a first-in-class, personalized autologous immunotherapy, its shorter duration of use than other cancer drugs, and its success in extending median overall survival beyond two years.
After growing to 1,500 employees and facilities in three states, Dendreon cut its workforce 25% in 2011, then restructured its operations in 2012 through actions that included selling its Morris Plains, NJ, manufacturing plant to Novartis for $43 million. A year ago this month, Dendreon restructured its operations again with the goal of cutting its costs by 20%, for a savings of $125 million.
According to its quarterly Form 10-Q filed today, Dendreon jettisoned 110 manufacturing employees and 45 commercial-team employees the year ending Sept. 30 due to the 2013 restructuring, as well as workforce reduction and employee turnover. As of that date, Dendreon’s workforce stood at a total 710 employees – including 380 in manufacturing, and about 120 in sales, marketing, and market access support.
Between October and December 2013, Crotty stated in his filing, Dendreon explored a potential sale through a confidential auction process overseen by J.P. Morgan Securities and Merrill Lynch: “A significant number of parties conducted due diligence; however, no bids were ultimately submitted.”
In February of this year, Dendreon retained Lazard Frères & Co. to provide general financial advisory services that included evaluating potential strategic alternatives, including assisting the company in any potential restructuring, sale transaction or financing transaction. Dendreon also hired AlixPartners, to identify further cost reductions, and engaged Trinity Partners, LLC, a life science strategic consulting firm, to prepare a valuation report and develop independent revenue forecast models.
Dendreon “discussed the possibility of a strategic combination” during talks in March and April with two entities it did not identify, Crotty said, adding: “These discussions did not advance beyond the preliminary stages.”
By early this summer, he added, “the Company determined that its previously-held view that it would ultimately be able to increase revenues through an increase in its volume of units sold was unlikely to occur in the next few years.” Dendreon studied automating its manufacturing process, but concluded that while that could improve quality control, it would generate no meaningful cost savings.
“The company concluded that given that it was highly levered and faced significant challenges in achieving positive free cash flows in the near term, the business likely would not be viable on a stand-alone basis absent a strategic transaction or a restructuring of its debt,” Crotty declared.
In its current restructuring, Dendreon came to terms with about 84% of holders of $620 million in convertible senior notes due 2016 Notes. Under their agreement, noteholders promised to support conversion of all 2016 notes to common stock in a reorganized company, while the bankruptcy court would oversee Dendreon selling off “all or substantially all” of its assets to a buyer that would continue producing and providing Provenge—either through its own reorganization plan or Section 363 of the Bankruptcy Code.
Under such a selloff, potential bidders would have to offer at least $275 million. If more than one qualified bid is received, an auction will be held to determine the successful bidder with the highest or otherwise best bid, after which the company said it will seek to consummate that deal.
If no qualified bids are received, Dendreon will proceed to confirmation of its stand-alone plan.
Dendreon said it has also requested court approval of the bidding procedures, as well as customary motions allowing it to pay employee wages, salaries, and health benefits without interruption, and continue customer programs and patient assistance programs.